Iowa State Urges Congress to Change Tax Policy on Patent Royalties

Washington — The provost of Iowa State University urged Congress today to modify a provision in federal patent law that has taxed her university, and so far only her university, nearly $1-million. Her request, at a hearing of the Senate Judiciary Committee, fell mostly on receptive ears: Sen. Charles Grassley, a Republican of Iowa, led most of the meeting. He has pushed an amendment to a patent-reform bill moving through Congress that would make the changes sought by Iowa State.

At issue is a royalty formula in the 1980 Bayh-Dole Act, which allows universities to patent and license the findings of research conducted with federal funds. Under that law, government-owned research facilities must pay a 75-percent tax rate on any royalties that exceed 5 percent of the lab’s budget.

The Ames Laboratory at Iowa State is one such laboratory. It has a small budget, much of it supported by patent royalties, and in 2006 paid back $921,400 to the U.S. treasury under the formula, the first lab forced to do so under the law. Elizabeth Hoffman, Iowa State’s provost, estimated the lab would pay taxes of about $1-million again next year.

Ms. Hoffman and Senator Grassley endorsed a plan that would change the royalty formula to 15 percent of a federally owned lab’s budget if the lab had a budget under $40-million. A similar measure was rushed through the U.S. House last December, and it would keep the 5-percent figure for labs with budgets exceeding $40 million.

“I know this is just one small issue in the scheme of things, but I do think that such a tweak to the Bayh-Dole Act will produce an equitable result for small entities that perform research,” Senator Grassley said in his opening remarks.

The chairman of the committee, Sen. Patrick Leahy, a Democrat of Vermont, seemed somewhat cool to changing the royalty formula, noting that federal taxpayers finance a significant portion of university research and have not received any royalties until last year. “It is proper to ask whether the taxpayer is receiving an adequate return,” he said. —JJ Hermes